An Analysis of the Robustness of Simple Monetary Policy Rules in Simple Models of the Output-Inflation Process

This paper employs stochastic simulation techniques optimally to calibrate the parameters of some the simple monetary policy rules that have been proposed in the literature. The question of the robustness of these policy rules to model uncertainty is examined. Uncertainties about three elements that can give rise to autocorrelated policy errors are considered: the slope of the Phillips curve, the level of potential output, and the dynamic effects of interest rates on aggregate demand.